FACULTY OF ADMINISTRATIVE SCIENCE AND POLICY STUDIES AM228 BACHELOR OF ADMINISTRATIVE SCIENCE (HONORS) ADS656 SEMINAR IN PUBLIC MANAGEMENT S3BA6C
ASSIGNMENT QUESTION: DISCUSS THE BENEFITS OF PUBLIC-PRIVATE PARTNERSHIP TO MALAYSIAN GOVERNMENT
PREPARED BY: NAME NURUL SYAFIQAH BINTI ABDUL RAHIM SITI MARDIANA BINTI MOHD SAINI NOOR ZAIHAN BINTI ZAINAL
PREPARED FOR: MADAM SITI MELINDA BINTI HARIS
DATE OF SUBMISSION: 5TH OCTOBER 2016
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BENEFITS OF PUBLIC-PRIVATE PARTNERSHIP TOWARDS MALAYSIAN GOVERNMENT Malaysia has gone through many development phases that include various effort and strategies to ensure that it is developing in real despite just a dream. Instead of the government develops the country alone, the cooperation between public sector and private sector has been a strategy so that government operations are delivered to the people in quality and efficient manner. Generally, Public-Private Partnership (PPP) is a public sector procurement approach by which government undertakes commitment from the private sector and transfers a certain level of responsibilities to the private sector in providing public facilities or services (Ismail, 2013). The PPP in Malaysia has evolved since 1981, when Malaysia Incorporated Policy was initiated to encourage this interdependent relationship where the private sector supports the commercial and economic activities, in another hand the public sector formulates most of policies, determines the direction and provides the specialized supporting services which are crucial to the business success (Malaysian PublicPrivate Partnership Unit, 2016). Two years later, privatization program was introduced to support the policy, whereas until April 2009, about 500 privatized projects have been realized throughout the country. Meanwhile, in March 2006, the Private Finance Initiative (PFI) was published in the Ninth Malaysia Plan as a part of the PPP which sets out many of the key principles on the procurement and implementation process of some of the public sector infrastructure. According to Malaysian Public-Private Partnership Unit (2009), the PPP engages the transfer of responsibility to the private sector in financing and managing a package of capital investment
and services
comprising the construction, management,
maintenance,
refurbishment and replacement of public sector assets such as buildings, infrastructures,
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equipment and other facilities, which generate a self-sufficient business. A contract is a must for the private companies, who interested to deliver public infrastructure-based services a long period of time through this PPP projects. The private company will finance the whole or part of the assets based on agreed performances by raising its own funds. As a substitute, the government will pay back the private company for these services unless for some PPP projects, the public users may participate directly in part of the payments. Examples of PPP projects implemented are Children Specialist Hospital in Universiti Kebangsaan Malaysia, development of Universiti Teknologi MARA (UiTM) Campuses; Kota Samarahan, Seremban 3, Jasin, Puncak Alam etc, West Coast Highway, Second Penang Bridge, Kuala Lumpur Outer Ring Road (KLORR) Highway, and etc. Thus, Public-Private Partnership should already exposed significant benefits to the government. The Public-Private Partnership (PPP) gives advantages the local economic development that can be seen through the changes or improvement of living condition of the people within the country. Before this, the economic structure of this country dominated by agricultural sector, mining and quarrying which is so called the primary sector. However, as the economic increasingly mature and that the country aims to be developed country, service sector contribute to the government by increasing shares to the economic Growth Domestic Product (GDP) (Malaysian Investment Development Authority, 2015). These are especially to industries that has strong basis for new growth area like education and training services, health tourism, waste management, Information Communication Technologies (ICT) and others. The creation of new development areas and improvement of accessibility and mobility are resulted from some PPP projects such as North South Highway, KLIA and Government office building in Putrajaya (Malaysian Prime Minister’s Office, 2016). Besides
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that, the building of highways and toll bridges under PPP also forms new townships and industrial areas benefit the public as it facilitates the movement of passengers and goods. Not only that, the concept of value for money that emphasized in the PPP also benefit the local economic development where the government optimized utilization of money even though need to compensate the project after the contracted period of time as long as it guarantees the life quality of the users (Malaysian Public-Private Partnership Unit, 2009). Besides that, since PPP is the consequence of Malaysia’s privatization initiatives that based on “Japan Inc.” model seen the country as a single corporation, private sectors operating are encouraged to be as the engine of growth through the enabling environment that government provides (Yusof & Bhattasali, 2008). The government may take the opportunity to focus their roles in public administration to the other aspects of the people well-being such as defense, people welfare such as to women, children, disabled and poor people, the quality of the public servants and others such as One Malaysia program and Bantuan Rakyat Satu Malaysia, which are direct-contact with the people, while the private sector will be the one that aids the economic growth. The Public Private Partnership (PPP) contributes to the government in reducing the government burden in their expenditure. Moreover, Coulson (2008) as cited in Ismail (2014), the PPP really help the government to avoid make borrowing for finance the entire project since it will financed by the private sector capital itself. This is really good to have it because when the government reduces the finance for the project that can be done by private sector such as public transport facilities. The government itself can focus spending on improving the services they will provide such as improve the asset in protecting the country such as jets and submarine for better protection for unpredicted event in future. This has been proven the privatization policy has been a great successful during period 1996 to 2000 which
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is the total amount of the savings for government capital expenditure are USD16.3billion (Ismail, 2014). This is really good for the government to have a big savings and avoid debts for the country. Furthermore, this agreement between public and private will reduce the government risks as well (Ismail, 2013). Due to the government limited resources to finance the project that want to implement. Therefore, having this contract it can make sure the project can be implement without any obstacle because the private party have their own assets to ensure the project will be done according to the time. Besides that, it can create the win- win situation because the government will get the revenue due to the services and the private party has a connection and cooperation toward the government that can make them easily to do the project in future. This public private partnership can help government to provide the basic infrastructure to the public. For example, the government needs to provide public transport for public to reduce the traffics during peak hours so they need to make offer to private company for the construction of the public transport facilities such as LRT. Next, the Public private partnership (PPP) also increases public trust toward the government because the services can be delivered faster to public (Ismail, 2013). This is because some of the project that the government wants to be implemented can be transferred to private sector. Therefore, the project can be delivery to the public as soon as the project complete. For example, KLIA Express and KLIA Transit, which commenced operations in 2002 is a daily high-speed, non-stop air-rail connection between Kuala Lumpur International Airport (KLIA) and Kuala Lumpur City Air Terminal (KLCAT). It was under the by Express Rail Link Sdn Bhd (ERLSB) for a concession period of 30 years. In addition, this agreement can enhance involvement of the private sector to the economic development because it can help to improve public facilities and services. It will make the public become satisfied and increase trust to the government because of the demand 5
and need that public want can be achieved. Therefore, if the public feel satisfied with the service that provided by the government, it will be easy to the government to make a new policy or project in future. Furthermore, it will ensure the greater accountability (Ismail, 2013). According to Business Dictionary (2016), accountability can be define as the obligation of an individual or organization to account of its activities, accept responsibility for them and disclose the result in a transparent manner. It also includes the responsibility for money and other entrusted property. This is important toward the government to ensure that there can be accountability or answerable toward what their done to the public. This is because the resources of money come from the public by paying the taxes. Basically, government can make announcement of budget every year to make the public know such as Budget 2016. Thus, the public will feel more trust and loyal to the government as it will select the same party that ruling the government in the next election. In addition, Public-Private Partnership (PPP) facilitates innovative approaches. According to Translating Innovation to Wealth (2016),innovation is the key driver that derives greater value for both socially and economically. It is a process that involves the application of information, imagination and initiative to translate the ideas or inventions into goods and services. For example, in the Tenth Malaysian Plan, government has provided funds for research, development and commercialisation initiatives (Translating Innovation to Wealth, 2016). Thus, throughout the implementation of the initiatives, it has resulted in the increase of innovation, in which the Global Competitiveness Index (GCI), Malaysia has ranked 20th out of 144 countries in 2014-2015 as compared to 24th out of 133 countries in 2009-2010. Moreover, it has been supported by Heald and Geaughan (1997), Gaffney, Pollock and Shaoul (1999), Glaister (1999) as cited in Ismail (2013),in which they clarifies that the reason to adopt Public Private Partnership (PPP) would allow improvement in the public 6
facilities and services because it encourages innovation by the private sector. Next, according to Vining and Boardman (2005) as cited in Ismail (2013), they had stated on rationales of why government engages in PPP, in which they have better incentives and a greater ability to innovate. Then, one of the attracting factors of adopting PPP in Hong Kong and Australia is facilitate creative and innovative approaches (Cheung, 2009, as cited in Ismail, 2013). Next, according to Leiringer (2006) as cited in Ismail (2013) one of the benefits that government apply the PPP is to let private sectors be innovative in providing solutions towards problems in delivering public services. Furthermore, according to Hurst and Reeves (2004) as cited in Ismail and Haris (2014), this PPP projects has given the authority to private sector to create innovative solutions, which includes better design and management as it has made specification on the output required. Thus, the innovation that has been created by the private sector through PPP will end up by realizing value of money and increasing the efficiency of public service delivery. For example,Malaysia has experienced many successful PPP projects that leads to social benefit, such as Kuala Lumpur Sentral, Light Rail Transit, medical facilities, many highways, bus stations and others (Beh, 2010; Abd Karim,2011,as cited in Ismail and Haris, 2014). According to The Institute for Public-Private Partnerships (2009), PPP is a focused decision on what is the best way to deliver services and procedures. For example, some of the projects of Public Private Partnership are Multimedia Super Corridor (MSC) to transform from manufacturing to knowledge-based economy and the innovative Information and Communications Technology (ICT) and e-government schemes, in which Malaysia is the world leader in e-government especially in e-procurement. Both of these PPP projects are relying heavily on partnership with private sectors.
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Last but not least, Public-Private Partnership (PPP) also increases efficiency in delivering public service. One of the rationales for a country to use Public Private Partnership (PPP) in delivering public services is based on the fact that private sectors is more efficient in performing that task (Hall,1998, as cited in Ismail, 2013). In addition, Hall has also elaborated that private sector is more efficient because they have the competitive pressures in the delivery of public services and they can also manage risks more effectively than public sector. Thus, it will lead to a more quality public delivery services. Moreover, Hurt and Reaves (2004) as cited in Ismail (2013) also mentioned that the benefit of PPP is that it has the potential of accruing efficiency. Next, Leiringer (2006) as cited in Ismail (2013) also added the reason that the government across the world chooses PPP which is the construction times are faster and it leads to higher efficiency. In addition, one of the six sources of savings of PPP that has been identified by Mumford (1998) as cited in Ismail (2013) is it will lead to speedier construction and more effective monitoring of contracts. Then, one of the benefits of implementation of PPP that has outlined by Reeves and Ryan (2002) as cited in Ismail (2013) is that it includes faster delivery of public infrastructures. This is because, when a public projects, such as the construction of Senai-Desary Expressway, Johor Bharu which is started in 2005 and completed in 2011 (Company Overview, 2008). It indicates the costs of the project are used efficiently and it will help the government to provide better road maintenance towards the public. The efficiency in utilizing scarce resources is a critical obstacles for government bodies (Nariman Mannapbekov, n.d.).It is because public sector has less or no incentives for efficiency structured in the organization and thus, it will results a less efficient build and operate infrastructure. Hence, the public sectors need to adopt the practices in private sector by establishing a Standard of Operating Procedure (SOP) that upholds the value of 8
effectiveness and efficiency. According to Nariman Mannapbekov (n.d.), Singapore has proven that government bodies could have also create efficient public services towards their people by developing a government-wide dedication while maintaining many critical services within the public domain by injecting incentives into public sector. In addition, it also allows government to pass operational roles such as, road maintenance, oil and gas, telecommunication services and others, to efficient private sectors while retaining and put the focus on the core public sector responsibilities, such as policies and supervision. In conclusion, the Public-Private Partnership (PPP) is all about how a private sector participates in the public procurement process. This approach not only benefits to local economic development but also reduces the government burden, increase public trust towards government, improve efficiency in delivering public services and facilitate innovation. The citizens should believe that the government has done a lot of effort to ensure the success development of the country throughout implementations of many policies. Nonetheless, in the implementation of the PPP, the government must also concern on its obstacles especially in facing the globalized world (Malaysian Prime Minister’s Office, 2016). Hence, government needs to tolerate with market and financial instability as well as to adapt to business and market innovations for the future economic sustainability. References Business Dictionary. (2016). What is Accountability? 2016, Retrieved September 30, 2016 from http://www.businessdictionary.com/definition/accountability.html Company Overview. (2008). Retrieved October 3, 2016, from Senai-Desaru Expressway Berhad: http://www.sde.com.my/ Ismail, S. (2013). Factors Attracting the Use of Public Private Partnership in Malaysia.
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Journal of Construction in Developing Countries, 18(1), 95–108. Ismail, S. (2014). Rationales for Public Private Partnership (PPP) Implementation in Malaysia. Journal of Financial management of Property and Construction, 19(3), pp.188-201 Malaysian Investment Development Authority. (2015). Services Sector. Retrieved on 4th October 2016 from http://www.mida.gov.my/home/services-sector/posts/ Malaysian Prime Minister’s Office. (2016). Speeches: Public-Private Partnership: Nation Path
Through
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from
http://ksn.jpm.gov.my/home.php?frontpage/speech/detail/2000 Malaysian Public-Private Partnership Unit. (2009). Guidelines of Public-Private Partnership. Malaysian Public-Private Partnership Unit. (2016). Background. Retrieved on 28th September 2016, from http://www.ukas.gov.my/en/latar-belakang Nariman Mannapbekov. (n.d.). Public-Private Partnership Handbook Acknowledgments. Asian Development Bank. The Institute for Public-Private Partnerships, 2009. Public-Private Partnerships in EGovernment: Knowledge Map, Washington, DC; infoDev / World Bank. Retrieved from http://www.infodev.org/publications, at October 3rd 2016. Translating Innovation to Wealth. (2016). In Eleventh Malaysia Plan (pp. 1–21). Economic Planning Unit. Yusof, Z.A and Bhattasali, D.. (2008). Economic Growth and Development in Malaysia: Policy Making and Leadership. Commission on Growth and Development, 27, p. 10
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